Council narrowly approves plan to back bonds with sales tax

After about 20 minutes of debate Feb. 8, Rockford City Council voted 7-6 in favor of authorizing the issuance of up to $9 million in bonds this spring as part of the project to acquire and demolish homes flooded along Keith Creek in 2006 and 2007.

Most, if not all, aldermen stood by the council’s previous commitment to follow through with its support of the Keith Creek Flood Mitigation Program, but the funding source behind the bonds—the 1-percentage-point sales tax approved by referendum in 2007 to fund the city’s capital improvements plan (CIP)—caused much division.

Aldermen Carl Wasco (D-4) and Bill Robertson (I-14) wondered what the funding source for the bonds would be should voters choose not to renew the tax in 2012. Robertson also noted the referendum campaign touted the sales tax as a means to avoid bond debt.

Noting the general fund is the only alternative, Robertson argued: “The general fund is already short several hundred thousand dollars. I don’t know any other way to get to this funding. …I just don’t like this plan at all.”

Asked by Wasco whether the funding source for the bond repayment could be amended once the report has been passed, Finance Director Andres Sammul responded: “We can fund it from some other source, but for the purposes of this ordinance and for the sale, we are telling the people that are going to purchase these bonds that these are property tax bonds, but it’s our intent to annually abate these through sales tax. And we can use sales tax, or some other source.”

As an example, Sammul added, “We can certainly fund those, for instance, just from a theoretical point of view, from a 1-percent soda pop tax.”

In total, Sammul indicated, the city plans to spend nearly $12 million on the overall project. He noted, however, the city’s cost has been offset by a $3 million grant, and that another $3.2 million grant is anticipated later this month.

“If that’s the case, then we would lower the bond sale amount from $9 million to $6 million,” he said.

In 2007, aldermen approved an agreement with the Rockford Local Development Corporation (RLDC), a non-profit, for a $10 million line of credit for the acquisition of flooded homes. That note comes due in June.

“The reason we worked with the RLDC was so that we would not lose our ability to go after potential grant sources,” explained Mayor Larry Morrissey (I).

The city then completed a hazard mitigation plan with Winnebago County, opening the door for state and federal grants. Any acquisition costs not covered by grants would have to be absorbed through the issuance of bonds, however.

“The council approved then moving forward with the project, knowing that if we didn’t get the grants…within the two-plus years since the incident, that we would ultimately have to figure out a way to cover the cost,” he added.

Morrissey said he’s fairly confident, however, federal flood-mitigation grant dollars will soon be approved for the city, but that the bonding process must proceed meantime.

“We stand behind a bond purchase with our full faith and credit to do whatever it takes to make bondholders current if they have a payment that’s due,” he said of the stated funding source. “We have to make sure we’re in a position to take out the note, because we’re not in a position, apparently, to renew that note, which is coming due. And I think that’s what all this work is trying to do.”

Asked whether the note could be renewed, Sammul reported, “I do not believe that we have the ability to increase our capacity to borrow short term.”

Ald. Joe Sosnowski (R-1) argued it was never the council’s intention to pay debt from the 1-percentage-point sales tax.

“I guess my concern with this is not with the project funding, but with the source of the funding coming from the CIP, because I think our general discussion and agreement was that we weren’t gonna fund this project out of the CIP,” he said. “I wouldn’t want there to be any question as far as whether or not this comes from the CIP, because that’s not my intent to cover these from the CIP sales tax.”

Ald. Frank Beach (R-10) shared Sosnowski’s apprehension.

“These are tough times that we’re in, and the thought of taking sales tax revenue…to fund this thing over the long haul, especially when our sales tax is dropping…is really a problem for me,” Beach indicated.

Ald. Pat Curran (R-2), however, reminded colleagues that flood control and storm-water issues were among the stated causes in selling the referendum to voters in 2007.

“It’s a flood control issue,” he asserted. “The city council voted to purchase these homes and demolish them.”

Curran also argued the bond issuance doesn’t need to be as much as $9 million, which he referred to as the “Cadillac option.”

“The vote tonight is not how to finance it,” he noted. “The vote tonight is simply to allow us to proceed with the bonding issue.”

He said there is still time for aldermen to reconcile any details and concerns at the committee level before the bonds are issued.

Ald. Doug Mark (R-3) reminded colleagues of the demands for action by constituents after the Keith Creek area was devastated by flooding twice in less than a year.

“It wasn’t that long ago, several years ago, when we all spent two years in a row with hundred-year floods. And they destroyed a lot of property in a lot of aldermen’s wards,” Mark said. “The first year, it was tragedy. And then the second year, the cry was: ‘When are you going to do something?’”

Mark agreed further discussion regarding alternative funding is necessary, but that the city has already committed to follow through with its promise to address the problem.